More VC Deals, Fewer Dollars in Q4

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Venture capital investors tiptoed back to biotech and pharmaceutical startups during the fourth quarter of 2012, generating more deals though not more dollars compared to a year earlier. The uptick was not, however, enough to prevent year-to-year dips in both amount invested and number of deals.

The number of Q4 ’12 VC deals rose 8% to 135 compared with 125 in the year-ago quarter. However, the amount invested in biopharma deals fell 6%, to nearly $1.3 billion compared with almost $1.4 billion during the fourth quarter of 2011, according to the quarterly MoneyTree Report, issued by PricewaterhouseCoopers and the National Venture Capital Association based on Thomson Reuters data.

For all of last year, total investment slid 15% to nearly $4.1 billion from $4.9 billion in 2011, even as the number of deals stayed relatively flat at 466 in 2012, versus 468 the previous full year.

The amount of quarterly capital poured into first-sequence investments continued its year-to-year plunge into the abyss during Q4—down more than half (53%) to about $148.8 million in 21 deals, from $319.5 million in 29 deals. That nearly mirrors the full-year 2012 performance, as first-sequence biotech capital invested fell 52.5% to $438.3 million in 73 deals from $922.3 million in 113 deals in 2011.

“There’s going to be a bias toward mid- to late-stage companies, and they will be attracting more capital than early-stage companies,” James I. Healy, M.D., Ph.D., a general partner at Sofinnova Ventures, told GEN. The firm is investing its eighth fund in the U.S., a $440 million life sciences-focused fund

“The life science sector is one with strong fundamentals, but we’re fundamentally in a contracting universe, where there will be fewer, but higher quality investors with larger pools of capital to be investing. We believe that will translate into fewer private biotech companies being financed, but the best ones being very well capitalized,” Dr. Healy said. “Ultimately, because those are higher quality opportunities overall, that should bode well for life sciences venture capital returns in the long term.”

Also likely to help the biotech VC market, he added, is an improving regulatory climate for the industry. FDA approved almost twice as many new drugs last year (39) as in 2010 (21), while Congress and President Obama quickly agreed to expand the agency’s use of faster reviews to new antibiotics and other “breakthrough” drugs through the FDA Safety and Innovation Act.

“A better regulatory environment will help set the foundation for more innovative products getting to market, which is a positive indicator for us as investors,” Dr. Healy said. “As those drugs get approved, they can generate very profitable businesses, which can be attractive candidates for initial public offerings or acquisitions. We feel that all three of those are very positive for our sector.”